Reference no: EM133073561

1. Floyd Industries stock has a beta of 1.2. The company just paid a dividend of $1.01, and the dividends are expected to grow at 3 %. The expected return of the market is 9%, and Treasury bills are yielding 5.7%. The most recent stock price for Floyd is $54. Calculate the cost of equity using the SML method.

2. Information on Commonwealth Power Co. is shown below. Assume the company's tax rate is 32%. Debt: 4,500 8% coupon bonds outstanding, $1,000 par value, 18 years to maturity, selling for 101% of par; the bonds make semiannual payments. Common Stock: 112,500 shares outstanding, selling for $61 per share; the beta is 1.21. Market: 11.5% market risk premium and 5% risk-free rate. What is Commonwealth's WACC?

3. Miller Exploration has a target debt-equity ratio of 0.61. Its cost of equity is 18%, and its cost of debt is 10%. If the tax rate is 34%, what is Miller's WACC?

4. Titusville Oil has a WACC of 11.6% and a marginal tax rate of 35%. If the firm currently has a cost of equity of 16.5% and wishes to maintain a target debt-equity ratio of 0.51, what is its pre-tax cost of debt?

5. Consider a 10-year project with the following information: initial fixed asset investment = $343,000; straight-line depreciation to zero over the 10-year life; zero salvage value; price = $42; variable costs = $23; fixed costs = $122,000; quantity sold = 94,140 units; tax rate = 34%. What is the dollar sensitivity of OCF to a change in quantity sold?